housing crash

[onewaypockets]

Comments from the following message board contrast with most of the views on this board....OWP

http://www.maxfunds.com/archives/000397.php

"Comments


-Let me throw my two cents: This month my aging parents told me they were selling all their real estate. Why? Not because of bubble fears, but because they're retiring and all of their net worth is (to use their words) "tied up in real estate". The desire to cash out of real-estate (ie: create liquidity) for one's retirement years is something that we'll be seeing an enormous amount of in the coming years. My parents are just a little older than baby-boomers. When you consider for a minute that something like 85% of the world's high-end real estate is owned by baby-boomers, the scale of the problem starts to become clear. The retirement of the baby-boom generation may also represent a liquidation of up to 85% of the world's high-end real estate. What will that do to the real estate market? Personally I have no idea. But I think we can say confidently that its an unprecedented flood of high-end real-estate onto the market. It certainly won't be good for prices.
Posted by: Popo at March 23, 2005 05:43 PM

-All the best wishes to all that invested
in houses in California and are trying
to rent the houses out. In Sacramento
over the last 2 years the prices went from
about 300 to 450k for a 2000sf newer house.
the rents for the same houses went down
from about 1900 to 1500
and market is flooded with houses for rent.
Economy weak salaries stagnant.
Let's wait and see.
Posted by: nemrod at March 23, 2005 07:11 PM

-The article misses its own key point #2.....
"2) a mortgage is essentially a forced savings program paid into each and every month"
Problem:
In effort for these people to qualify for a home, they must chose in interest only loan, wiht low monthly payments.
Interest only loans are not savings plans.
These buyers are "banking" (no pun intended) on the fact the appreciation will exceed what they can pay down in principal. This spells disaster.
Posted by: bubble buster at March 23, 2005 07:25 PM

-To Nemrod:

Are you in Sacramento? What area do you live in? It's amazing what is going on here...it will be interesting to see what happens in the Spring and thru the Summer with the growing supply. Maybe it will take another year for the psychology to shift but by an analysis I just did and a "normal" cycle (minus a deflationary fallout), I have a decline of roughly 33% over the next 5 years.

Mike
Posted by: Mike at March 23, 2005 07:49 PM


-The housing bubble is cracking here in Las Vegas. Prices have doubled in the past two years but rents have not budged. Adjustable rate mortgages are ratcheting up payments and higher tax bills are coming out in July. For most properties, cash flow is negative. By August, this place will be a real estate nightmare.
Posted by: Thinking Bear at March 24, 2005 07:14 AM


-Ive owned a mortgage company for the last 12 years. Its been a good run. Whats changed...and what gets mostly glossed over is the steady decline of underwriting standards. 10 Years ago....you had to actually qualify for a loan...put some money down....and have decent credit. IN the last 2-3 years.....ANYONE can get a loan...with NO money down....crappy credit....and NO employment verification. ANYTHING goes. On top of that....Realtors are putting 2-4 thousand dollars into contracts (into the sales price of the home)to pay for closing costs. Appraisers are able to keep substantiating higher prices because people are willing to pay the higher prices because they do not have to take any (or very little) of their own money out of their pockets. Very little of the increase of home prices has to do with REAL value. Its value thats being created by lax underwriting and low rates. IS there a bubble? There is no doubt about it....and its been created by lenders, FNMA, GNMA, and the agencies that oversee them. The end is near...and when it blows.....the financial devastation will be unlike anything ever seen before.
Posted by: BK at March 24, 2005 09:29 AM


-I agree with BK regarding the lax underwriting standards of banks in qualifying clients for mortgage loans. I have been a mortgage loan agent for the past 18 yrs in SF and it seems like nowadays, anybody can qualify for loan even up to 100% LTV. what is scary are the 100% loans with a two year fixed rate, then becomes adjustable for the next 28 years at margins of 6.50% over the libor index. If rates should rise in the next few years, the borrower will find out that after the initial two years at a fixed rate of, say, 5.50 to 6.50%, the rate on his loan could be 10 to 11% on the third year. Now if real estate values were to fall, he would not be able to sell or refinance his mortgage loan. At that point, since he did not put any downpayment on the property, he may just walk.
Posted by: dd at March 24, 2005 08:34 PM

DD:

-No....he WILL walk. There is no doubt about it. Even a 5-10% decrease in values (and it will be much more than that) will financially ruin millions of people. Many, many, many, people have taken out 90-100% of the value (over inflated by anywhere from 10-50%) their homes to pay for credit card debt, un-needed Hummers and big screen TV's, Vacations, 2nd homes....anything and everything. Its a stinking time bomb that WILL go off. And thats just the Good borrowers!

During the last 2-3 yers or so, all thats left in the marketplace (for the most part) are the deadbeats. When I got in the business about 15 years ago..NO was a possible answer when you asked for a mortgage loan. NO....your credit stinks. NO....you have a poor (or no) job history. NO...you dont have a down payment. NO is not part of the equation anymore. The only answer is YES. It should be NO....but its YES...Its stinking insane! These people STILL shouldnt be getting loans....with their mid 500 (terrible)credit scores. But whats happening? The lenders are giving them loans with no money down....many of them are 80/20 arms (thats 100% financing folks) that will adjust (as you said) in a few years. WHen this begins to happen..... God help us. This is a reality. The lenders, Realtors, (Government?) are doing ANYTHING to keep real estate moving. If it stops...the US economy is going to implode. This is no "sky is falling" diatribe either....its been building over the last 5 years....its happening. Very, Very, Very, scary stuff. Wait and see. I'm very close to getting out of the business. When the house of cards begins to fall.....people are going to be looking for someone to blame for their own foolish spending and living beyond their true means. I do not intend to take the fall.

By the way...the government is complicit in this. They run FNMA and GNMA who pruchases the bulk of these mortgages. They know that the collateral (the houses) on these loans are puffed up and artificially over-inflated. They have allowed it to happen in order to try to keep the economy moving and keep people feeling good about themselves. The problem is beyond scope....beyond repair....beyond belief. THe only way to fix is it is for prices to retreat...substantially...and when it happens...lots of people will be hurt..... badly.
Posted by: BK at March 24, 2005 10:06 PM

-Re: Real Estate & Overall Portfolio

1) Own the home you live in [with as small a mortgage and monthly payment as you can manage]. Desperation is a lost job and big mortgage; disaster is a lost job, big mortgage and falling real estate prices.

2) Today's real estate market is as highly leveraged as it ever has been. We all have received offers in the mail to the effect, "No money down refinancing - LOW [introductory] RATES!" Old timers will recall that getting the lowest lending rates required 20% down on the appraised value [versus 'sales price'].

3) There is a fourth part of any sound portfolio - hard assets. In the past, sound investing in gem quality diamonds, gold and silver have proven effective shelters against the terrible storms of economic downturns, governmental crises, inflation. When national economies go bad, neither stocks nor bonds are safe. Of course there have been bad, overhyped run-ups in diamonds, et al. But there are always hard assets with good fundamentals with limited downside risks. My current view is that ~5% of your portfolio should be in gold bullion and US numismatic gold coins and ~10% should be in silver bullion [or 90% silver US coins, 1964 and prior]. Silver fundamentals are especially attractive right now. Hard asset investments are much sounder investments in potentially difficult economic times than real estate investments beyond the house you live in.

4. For those tempted to watch Suze Orman, my advice is to mute the TV. She's an self-made entertainer & PBS fund-raiser, not a financial guru [ala some religious cult leader] that anyone should blindly follow.
Posted by: Bud Woods at March 25, 2005 07:03 AM"

 

[chisel]

A big THANKS for your post, OWP.

 

[vitajex]

http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/03/07/MNGOTBLIIR1.DTL

Real estate investors cast watchful eye on Las Vegas' high stakes housing game
- Kelly Zito, Chronicle Staff Writer
Monday, March 7, 2005

Las Vegas' lucky number last year was 52 -- as in 52 percent. That's how much real estate prices jumped in the nation's fastest-growing city in one year, as a housing shortage set off a wave of speculation by investors from California and other states.

But as any gambler knows, Lady Luck eventually turns a cold shoulder. Las Vegans wanted to cash in, too, and so many put their houses up for sale that they flooded the market. By the end of the year, some homebuilders were slashing prices.

For investors from states like California where prices seem to move in only one direction -- up -- it was a stark example of a deflating bubble.

"When you lose money in real estate, you really feel it,'' said Igor Doncov, a software engineer in Half Moon Bay who bought two new houses in Las Vegas early in 2004 but sold them at a loss after his builder, Pulte Homes, cut prices on its new models by $180,000.

"I thought I couldn't lose," he said in a telephone interview. "But it turned into a total disaster."

Housing analysts don't think Las Vegas' slowdown is a sign that prices will soften soon in other fast-appreciating regions. But they say it is a warning of what could happen in the Bay Area as interest rates go up -- particularly for people trying to "flip" houses for a quick profit.

"Everyone is watching Las Vegas with its price appreciation and flipping, " said John Karevoll, an analyst at DataQuick, the La Jolla real estate research firm. "If something weird happens, it'll happen there first."

For years, Las Vegas real estate was cheap. Myrna Kingham, president of the Greater Las Vegas Association of Realtors, remembers not-so-distant days of driving around in a pickup wearing high heels and showing clients dusty 5- acre parcels listed for $20,000.

But as the population of Las Vegas and surrounding Clark County grew 81 percent in the 1990s, adding 621,160 people, housing prices caught up, matching the national median of $145,000 in 2001.

Then last year, the market caught fire, boosted by healthy job gains, a growing stream of retirees, Californians drawn to lower home prices and an influx of investor money.

Builders, faced with a shortage of workers, had trouble keeping up. Add rock-bottom interest rates, and the scene resembled the go-go days of the Bay Area's tech boom. Hundreds of would-be buyers descended on open houses, and home prices seemed to increase as quickly as the progressive jackpots in the slot machines on the Strip.

Record appreciation

In the spring of 2004, the median price for a single-family house was $269,000, 52 percent higher than the year before -- a national record for appreciation, according to the National Association of Realtors.

"The market was hotter than blazes," Kingham said. "People were looking for affordability -- they wanted a nice home in an area with nice weather that they could buy for $200,000."

Californians, who pay some of the highest home prices in the nation, took notice. Golden State residents have snapped up nearly 27,000 Las Vegas properties since 2000, according to DataQuick. In 2004 alone, California residents bought 11,600 homes -- 12 percent of the transactions in Clark County for the year.

Bay Area residents bought nearly 7,800 Las Vegas properties over the past five years. In the second quarter of 2004 alone, the number who bought Las Vegas property doubled from the same quarter the year before, to more than 800, surpassing investment in Sacramento, the Tahoe region and Palm Springs for the seventh straight quarter.

But in less time than it takes to build a single house, the market changed.

Egged on by the stratospheric prices their neighbors were asking -- and getting -- homeowners in Las Vegas flooded the market with "for sale" signs. The number of existing houses posted for sale on the Multiple Listing Service ballooned from about 1,400 in February to more than 16,000 by October.

Among them were never-lived-in homes offered by investors who had bought them only months before from national homebuilders -- who were selling their own brand-new houses literally across the street.

In early fall one of those builders, Pulte Homes, took the extraordinary step of slashing prices by $25,000 to $180,000 on more than 20 of its Las Vegas-area developments. The move sent shock waves through the Las Vegas building industry and angered investors like Igor Doncov.

Doncov, a 57-year-old engineer who was a victim of the technology flame- out, was one of thousands of investors who hoped to turn a quick profit by buying and selling Las Vegas property within a few months. Early last year he bought two new houses from Pulte Homes for $515,000 each.

By the end of the summer, he said, the houses were worth well over $600, 000, based on Pulte's prices for the same models. Then Pulte cut the price by about $180,000.

Doncov sold the two properties in December and January for $480,000 and $490,000; after closing costs and sales fees, he estimates he lost $100,000. He is working with a lawyer to try to recoup the losses from Pulte, on the grounds Pulte misled investors by systematically raising new home prices, then abruptly lowering them. Many people in Las Vegas shrug at tales like Doncov's, saying any plan to get rich quick is fraught with risk.

"There are people who come here and lose all kinds of money on the card table," said Keith Schwer, an economist at the University of Nevada at Las Vegas.

By December, it was clear the peak of the frenzy had passed.

Residential building permits that month were 34 percent below the previous December's, as measured by the Center for Business and Economic Research, which Schwer directs. And 15 percent fewer people were moving to Las Vegas -- some undoubtedly spooked by the region's steep jump in home prices.

Pulte officials would not comment on the price reductions. In the wake of Pulte's move, other builders also cut prices but made no formal announcements.

KB Home, the region's largest home builder, didn't cut prices but did tighten its policies on sales to investors. Contracts now stipulate, that, barring the loss of a job or other major problem, those who resell their properties within a year have to give KB Home the profit.

Despite the builders' moves, Schwer and other experts say the Las Vegas market remains healthy. In recent months, they say, the number of homes for sale has declined and homes are selling faster.

In January, however, there were still 13,800 homes for sale. Though the median price for a new home climbed 6 percent to $307,500, the median for an existing home -- $251,000 - was up only one half of one percent from a year before, according to Schwer.

Over the long term, the area's job growth -- including a new 8,000- employee casino opening in April -- warm climate, entertainment options and well-equipped airport will continue to draw buyers, Schwer said.

On a Friday morning in February, Bill Jeffers, who owns Valley Furniture in Livermore, toured a $731,000 home in a subdivision called Inverness. By buying a home in Las Vegas, Jeffers, who has lived on Maui for several years, will shorten his twice-monthly commute to the store and put his grandchildren into strong school systems.

"I tried to get in last year, but there were just too many other buyers," said Jeffers, a Livermore native.

Some making profits

And some investors who bought wisely are making profits.

Stephanie Wedge, a San Jose real estate agent who also brokers property in Las Vegas, bought a house for $625,000 last May. She put the 5-year-old home on the market on Feb. 23 for $775,000, and she expected to get an offer the following week.

"That's a really good turnaround," said Wedge, who also has reserved a condo in a yet-to-be built high-rise. "I think it depends on where the property is -- and this is in a gated, country club community." The continued pace of construction serves as an outward sign of the region's confidence. On a stretch of freeway south of the Strip, a sign reads "KB Home, Next 5 Exits."

Adding more houses to a market already flush with them would seem to only exacerbate any stagnation in the market. But Dennis Smith, president of Las Vegas' Homebuilders Research Inc. pointed out the vast majority of new homes are presold. The market "is still in correction mode because of the high inventory in the resale segment,'' he said. "It will probably take at least six months for that to end."

So, will what happened in Vegas, stay in Vegas?

Schwer doubts Las Vegas' deceleration will bleed into the Golden State --

or any other state -- in part because Las Vegas growth rates were so far above the norm.

Others say the arc of Las Vegas' recent experience may contain a hint of the Bay Area's future.

While the nine-county region saw much lower price appreciation last year than Las Vegas -- an increase of about 17 percent -- Ed Leamer, a UCLA economist, contends that both regions are enveloped in a speculative frenzy.

In Las Vegas, an oversupply of homes relative to demand may spell price declines. Back in the Bay Area, Leamer thinks rising interest rates will take some of the air out of the market as fewer people qualify to buy expensive properties -- though any correction would be far less dramatic than Las Vegas'.

"Because the market has cracked in Las Vegas doesn't mean it's imminent in other areas," Leamer said. "But it gives you a sense of what may happen in these areas in the face of rising interest rates."

E-mail Kelly Zito at kzito@sfchronicle.com.

 

[jficquette]

Quote from murray t turtle:

Also figure home office deduction;
home office depreciation.

Dont know where they got the title of crash, houses went down about average 20 % in the great depression;
thats a correction , in a bull market, not a crash

Buy at $240 and sell at $480. That is the exact mentality that got Naz to 5000 by thinking that you could double your money easy peasy.

John

 

[onewaypockets]

"Saturday, March 26, 2005

It's a Totally New Paradigm

The "nothing can possibly go wrong" talk is rampant again. It's not stocks this time but Real Estate. Let's take a look at some quotes from the New York Times Article Trading Places: Real Estate Instead of Dot-Coms

Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors says that "South Florida is working off of a totally new economic model than any of us have ever experienced in the past." He predicts that a limited supply of land coupled with demand from baby boomers and foreigners will prolong the boom indefinitely.

"I just don't think we have what it takes to prick the bubble," said Diane C. Swonk, chief economist at Mesirow Financial in Chicago, who was an optimist during the 90's. "I don't think prices are going to fall, and I don't think they're even going to be flat."

"I look at this as a short-term investment," said Mr. Farquharson, 36, who works for a venture capital firm, "and plan to unload it as soon as things look dangerous."

Now there's a laugh. By the time it looks dangerous will there be anyone looking to buy? Doesn't it look and feel dangerous now? Is he blind or am I?

MoneyPenny on Silicon Investor writes: "I live in this fantasy land. SW Florida seems to believe that we are immune from any financial difficulty. I have a friend that is positive that real estate values will appreciate 20% a year for the next 10 years as Baby Boomers move to Florida. .... I stand in amazement but I am enjoying the amazing increase in my interior design business. I have never seen anything like it in my long career (37 years)."

Free money shills are everywhere: "Who Else Would Like to Learn How To Make Over $100,000, in 6 Months, With an Investment In Preconstruction Real Estate?"

Who needs models? "The demand for the product was so high that we could actually sell it without having a model to show them," said Glen Stegeman of Paseo Home Sales. "It is kind of crazy. It's a good crazy. Obviously the demand is there," said Stegeman.

The real estate bubble is not just limited to the US either. Brad Sester talks about the Trans-Pacific Real Estate Bubbles in China and how that is related to the housing bubble in the US.

Is this really a totally new economic model or is it just the same old story: Mammoth greed and speculation fueled by easy money and an intense belief that "nothing can possibly go wrong"? In the meantime I am getting "hate emails" from people bragging about flipping in Florida. I guess we should all retire and flip houses, sight unseen of course. Who needs to see a model? Heck, any plot of land with a 5 year plan to "build something really nice" on it is all it takes these days to get people interested. Then again, perhaps random taunts out of the blue from "true believers" are another sign of topping action.

Talk of "new paradigms" or "new economic models" has been associated with every major bubble in history, typically near the peak. Wasn't it just 5 short years ago that Greenspan proclaimed the "productivity miracle" and everyone was counting "clicks" on dot coms as the "new economic model"?

Just as soon as I finished writing this post, I found a new quotation to add.
It's perfect.

Gregory J. Heym, the chief economist at Brown Harris Stevens, is not sold on the inevitability of a downturn. He bases his confidence in the market on things like continuing low mortgage rates, high Wall Street bonuses and the tax benefits of home ownership.
"It is a new paradigm" he said.

Scroll back up and take a look at that first chart again. Current talk of "New Paradigms" and "New Economic Models" should tell you exactly where we are and where we are ultimately headed.

Mish

posted by Michael Shedlock at 1:41 PM"

 

[ae_trading]

I find it interesting that two groups of real estate owners have recently popped up on my radar as being involved in heavier than usual selling.

Owners of large apartment complexes in the MA area and owners of large portfolios of residential properties in the CT area.

Smart money moving out? Maybe. Maybe not.

In addition prices of properties on Martha's Vineyard, MA(luxury oceanfront) have recently stalled and in many cases pulled back.

-ae_trading

 

[SteveD]

The fact that apartment owners are selling is actually a very bullish sign for single family home ownership. They are loosing tenants to home ownership and they do not see an end to that trend in the near or mid term future.

Real estate is made up of several very distinct and different segments that do not necessarily move in the same direction at the same time.

Single family NEW sales go up and apartment occupancy goes down!!! DUH!!! Where do you think the new buyer comes from??

Office rents/occupancy are being hurt by new technology: cell phones, internet, etc etc. Companies simply don't need as much space as before. Office rent/expense is a major cost to most companies.

Retail/shopping centers go up because all of those new rooftops are buyers for new development coming into the new suburb being developed. Small shops, large "box" retailers etc etc.

But it ALL, in one way or another, is based on JOB creation.

Unemployment is below 6% and interest are below 6% so boys the END is not NEAR.

And, please don't embarrass yourself by using Japanese real estate charts or NASDAQ charts as some kind of comparison. Simply silly.

SteveD

 

[jficquette]

Quote from SteveD:

The fact that apartment owners are selling is actually a very bullish sign for single family home ownership. They are loosing tenants to home ownership and they do not see an end to that trend in the near or mid term future.

Real estate is made up of several very distinct and different segments that do not necessarily move in the same direction at the same time.

Single family NEW sales go up and apartment occupancy goes down!!! DUH!!! Where do you think the new buyer comes from??

Office rents/occupancy are being hurt by new technology: cell phones, internet, etc etc. Companies simply don't need as much space as before. Office rent/expense is a major cost to most companies.

Retail/shopping centers go up because all of those new rooftops are buyers for new development coming into the new suburb being developed. Small shops, large "box" retailers etc etc.

But it ALL, in one way or another, is based on JOB creation.

Unemployment is below 6% and interest are below 6% so boys the END is not NEAR.

And, please don't embarrass yourself by using Japanese real estate charts or NASDAQ charts as some kind of comparison. Simply silly.

SteveD

Hi,

Apartment selling is bad for the housing market because it typically indicates a bottom in rent. People tend to sell at bottoms.

Another reason is many of these are going for huge profits to companies buying them to convert to condos. When companies start to pay crazy prices to buy apartments to convert to condo's then that usually indicates a lack of fear in the buyers. That is not good either.


Plus my wife who knows nothing about real estate or money for that matter flipped a house and made $45k after everything. Plus her girlsfriends are all talking about it. This is just like the stock market bubble when EVERYONE was in the market.

Believe me when housewives start flipping houses it has to close to a pullback.



John

 

[kiwi_trader]

It will be interesting, Easter 2006, to see who was right.

Steve,

Oneway didnt say that they were losing tenants, he said that they were selling the assets, which is very different. Do remember that someone else is buying them. If it turns out to be teachers and firemen's unions then we might all get a message from that

I sat down with a prior boss of mine 12 months before the stock market crash and he was heavily invested in techs. His reasoning was very solid. Hes an excellent thinker. Like lots of people I talked to in that year I encouraged him to use stop losses (which you can't do on housing). Guess how many of them did?

At the time the only real indications of a blow off were the same type that oneway quotes above. And with those measures you can't say when it will happen ... just that it eventually will.

Lets see if you are eating your hat next year.


Edit: I see by the prior post that the firemen and teachers are now buying.

 

[jbtrader23]

That New York Times article is destined to become infamous. I almost did a double take when I read about a "new economic model." It was only 5 years ago that people were still talking about the "New Economy"!!

Still, the market could go higher:

I haven't heard about any celebrities getting involved (remember Barabra Streisand day trading Qualcomm on the cover of TV Guide right near the peak).

Rates could continue to suprise people. The decline of the Dollar has been so heavily discounted (on the cover of NewsWeek recently), that the story of 2005 could be the unexpected strength of the greenback. Thus the status quo with rates.

Long term bears haven't thrown in the towel. The stock bubble of the 90's got the best of nearly everyone. Skeptical players (Soros, Robertson) got hurt and even ultra bears threw in the towel (Herb Greenberg finally relented near 5,000).